McDonalds Restaurants Limited v Shirayama Shokusan Company Limited [2024] EWHC 1133 (Ch)

Summary

The High Court held that a commercial landlord was liable to pay compensation to its former tenant under section 37A of the Landlord and Tenant Act 1954 in consequence of its misrepresentations made to obtain an order terminating the former tenant's tenancy.

The law

Section 37A of the Landlord and Tenant Act 1954 (the Act) states that:

(1) Where the court–

(a) makes an order for the termination of the current tenancy but does not make an order for the grant of a new tenancy, or

(b) refuses an order for the grant of a new tenancy,

and it subsequently made to appear to the court that the order was obtained, or the court was induced to refuse the grant, by misrepresentation or the concealment of material facts, the court may order the landlord to pay to the tenant such sum as appears sufficient as compensation for damage or loss sustained by the tenant as the result of the order or refusal.

The background

McDonalds Restaurants Limited (McDonalds) occupied ground floor and basement premises within the Riverside Building, County Hall on Belvedere Road (the Premises), owned by Shirayama Shokusan Company Limited (Shirayama).  The lease expired on 7 December 2017 but was protected by the Act.  McDonalds requested a renewal lease but an order was ultimately made terminating McDonalds' tenancy on 5 March 2019 on the ground that Shirayama intended to occupy the Premises for the purposes of its business. 

To obtain this termination order, Shirayama undertook to the Court that its subsidiary, Aji (Restaurants) Limited, would occupy the Premises to commence trading its new business, Zen Bento, as soon as reasonably practicable after obtaining vacant possession of the Premises.

In March 2020, McDonalds's solicitors sent a letter before claim to Shirayama to allege that it had misrepresented its intentions at trial on the basis that the Premises had remained empty since 5 March 2019.  At the end of March 2020, Shirayama started operating a restaurant called "Aji Restaurant" from the Premises; however, this was subject to Covid lockdown restrictions and so could only initially serve takeaway food.  In February 2021, the basement and part of the ground floor of the Premises were operated as "Aji Bakery Café" (an English style coffee/shop bakery) and the remainder of the ground floor remained operating as "Aji Restaurant" (a Japanese restaurant).

The claim

McDonalds brought a claim against Shirayama which alleged that it had misrepresented its intentions for the Premises to obtain a termination order and that McDonalds was entitled to compensation, to be calculated as the loss of profits it would have received if a new 15 year lease had been granted.  An additional or alternative claim was also brought for damages arising from the tort of deceit.

The evidence

The judgment contains multiple extracts of email correspondence from Mr Okamoto on behalf of Shirayama, some of which are illuminating as to Shirayama's intentions for the Premises.  Some of the more eyebrow-raising extracts include:

• "We didn't tell anyone before, but actually & truly we have fought (Legal Battles) and taken back the current McDonalds space for GRACE & HANNAH", to offer a restaurant concept different to Zen Bento.
• A concept to offer "ALL the dishes/meals in every country on this Planet EARTH, except disgustingly stinky Korean dog foods".
• When explaining the reasoning behind reusing the Premises space as is, "Last night I was in the same PanAm airplane with Professor Albert EINSTEIN".

The timing and contents of various emails sent by Mr Okamoto referred to multiple different restaurant concepts, some of which wildly deviated from the Zen Bento concept, and suggested that Shirayama never did intend to open Zen Bento at the Premises.

The decision

Whilst Shirayama did want to run a restaurant from the Premises, it had misrepresented its true intentions at the time when inducing the Court to terminate McDonalds' tenancy and refuse to grant a new tenancy.

The High Court held that Shirayama did misrepresent its intention to open Zen Bento at the Premises with the objective of obtaining a termination order.  McDonalds' claim under section 37A of the Act succeeded; as liability has now been established, a subsequent trial will be listed to deal with quantum.

In respect of the additional or alternative claim under the tort of deceit, this failed, although it was noted that this seemed to be a "somewhat unsatisfactory conclusion" which may be explored further in another case.

Our comments

This judgment illustrates that a landlord must have a genuine intention to operate its own specified business from premises if it wishes to overcome a tenant's statutory rights under the Act to deny a renewal tenancy.  It did not matter the Shirayama intended to (and indeed does) operate its own restaurant from the Premises; what matters is that the restaurant business is different to that represented in the termination order hearing.

These facts are unique in that there was a significant amount of email correspondence which evidenced that Shirayama did not have any settled intention as to what restaurant to operate from the Premises until the termination order had been obtained.

All eyes will now be on the subsequent trial dealing with quantum to see what the financial consequences of Shirayama's misrepresentation will be.